Situation and Outlook Yearbook. Crop insurance premium subsidies for wheat. Average subsidy rate. 1990/91 92/93 94/95 96/97 98/ /01 Crop year

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1 United States Department of Agriculture ERS Economic Research Service WHS-2001 March 2001 Wheat Situation and Outlook Yearbook Crop insurance premium subsidies for wheat $mil. subsidy % rate subsidy Average subsidy rate Total premium subsidy /91 92/93 94/95 96/97 98/ /01 Crop year Source: Risk Management Agency, USDA.

2 Wheat Situation and Outlook Yearbook. Market and Trade Economics Division, Economic Research Service, U.S. Department of Agriculture, WHS-2001, March Contents Summary Ending Stocks Down, Prices Rise Outlook for 2001/02 Winter Wheat Acreage Seeded is the Lowest Since 1971/ Wheat Supply and Ending Stocks Likely Down in 2001/ World Wheat Supplies Unlikely To Increase in 2001/ Situation and Outlook for 2000/01 Prices Strengthen As Ending Stocks Decline in 2000/ World Wheat Production, Stocks, and Trade Drop in 2000/ U.S. Wheat Exports Up Slightly in 2000/01, U.S. Share of Global Trade Increases Wheat by Class, 2000/01 Wheat Quality Good in 2000/ Special Articles The Effects of the Federal Crop Insurance Program on Wheat Acreage Organic Wheat Production in the United States: Expanding Markets and Supplies List of Tables and Figures Situation Coordinator Gary Vocke (202) Principal Contributors Edward Allen (202) Gary Vocke (202) Production Assistance Lorie Thomas (202) Michalene Schechter (202) Monte Vandeveer (202) Mary Fant (202) Editor Martha Evans (202) Layout & Text Design Wynnice Pointer-Napper (202) Approved by the World Agricultural Outlook Board. Summary released March 27, The Wheat Situation and Outlook may be accessed electronically via the ERS website at The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact USDA s TARGET Center at (202) (voice and TDD). To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call (202) (voice and TDD). USDA is an equal opportunity provider and employer.

3 Summary The Wheat Yearbook presents preliminary projections for 2001/02 that were released at the 2001 Agricultural Outlook Forum on February 23, Wheat farmers responded to unfavorable planting conditions, particularly in parts of the Central and Southern Plains, by reducing winter wheat plantings for the 2001 crop by 2 million acres, down 5 percent from a year earlier and the lowest since Spring wheat (including durum) plantings are expected to rise due to lower winter wheat plantings in some areas, especially Montana, and more attractive prospective returns relative to competing crops. The calculated 2001 harvested area, based on the 5-year average by State, is reduced a half-million acres due to late plantings and emergence and currently poor conditions of some of the wheat in the Southern Plains. Total wheat production for 2001/02 (June/May) could decline about 4 percent, assuming an average wheat yield of 40.5 bushels per acre, based on the average of yields by State. Coupled with smaller beginning stocks, the total supply would be about 6 percent below the current marketing year that ends on May 31. Total use is forecast down slightly because of reduced exports and smaller feed and residual use. However, the smaller use will still exceed production, and ending stocks will decline. Even so, stocks will remain relatively large, and the average price received by farmers will likely be below $3.00 again in 2001/02. For 2000/01, U.S. wheat supplies are expected to drop 2 percent to 3,268 million bushels. Total disappearance is forecast to rise about 2 percent from 1999/2000, the result of higher projected domestic use and exports. Use will exceed production, and stocks are forecast down 12 percent from 1999/2000. The season-average farm price is projected to range between $2.60 and $2.70 per bushel. U.S. wheat exports are forecast to increase slightly because of reduced competition from the European Union, Kazakhstan, Australia, Eastern Europe, Turkey, and others. Some increased competition is expected from Argentina, India, and Pakistan. The top markets for U.S. wheat exports, including Egypt, Japan, Mexico, and the Philippines, are expected to be little changed. THE WHEAT SITUATION AT A GLANCE All wheat: Supply and disappearance 1/ Wheat by class: Supply and disappearance 1/ Hard Hard Soft Marketing year 1996/ / / / /01 Marketing year red red red White Durum Total beginning June 1 2/ 3/ beginning June 1 winter spring winter Million bushels Million bushels 1999/2000: 2/ Beginning stocks Beginning stocks Production 1, ,299 Production 2,277 2,481 2,547 2,299 2,223 Imports Total supply 1, ,339 Imports Domestic use ,300 Total supply 2,746 3,020 3,373 3,339 3,268 Exports ,090 Total 1, ,390 Domestic disappearance Food Ending stocks Seed /2001: 3/ Feed & residual Beginning stocks Production ,223 Domestic use 1,301 1,257 1,384 1,300 1,334 Imports Total supply 1, ,268 Exports 1,002 1,040 1,042 1,090 1,100 Total Domestic use ,334 disappearance 2,302 2,298 2,427 2,390 2,434 Exports ,100 Total ,434 Ending stocks disappearance Ending stocks / Includes flour and products imported and exported in wheat equivalent units. ERS estimates of domestic use. 2/ Estimated. 3/ Projected. Source: Economic Research Service, USDA. 2 n Wheat Yearbook/WHS-2001/March 2001 Economic Research Service/USDA

4 Outlook for 2001/02 Winter Wheat Acreage Seeded is the Lowest Since 1971/72 Winter wheat plantings declined 5 percent from a year earlier to their lowest level since 1971/72. However, spring wheat (including durum) plantings are expected to rise due to lower winter wheat plantings in some areas and more attractive prospective returns relative to competing crops. The U.S. Department of Agriculture will release its first official forecast of the 2001 production on May 10, Winter Wheat Acreage Drops For Fifth Year in a Row The Winter Wheat Seedings report released by the National Agricultural Statistics Service (NASS) on January 11, 2001, provides the first indication of wheat plantings for 2001/02 (fig. 1). Winter wheat planted area for harvest in 2001 is estimated as of December 1, 2000, at 41.3 million acres. This is down 5 percent from 2000 and is the lowest level since Hard red winter (HRW) wheat seeded area is about 28.9 million acres, down 5 percent from a year earlier. Oklahoma and Texas led the decline, down 700,000 and 400,000 acres, respectively. Colorado and Montana also showed large decreases. Dry conditions were the leading cause of the lower acreage. These dry conditions delayed seeding progress and slowed emergence. In Texas and Oklahoma, Figure 1 Winter wheat planted area down again in 2001 Mil. acres HRW SRW White Crop year 2001 preliminary. Source: National Agricultural Statistics Service, USDA. the dry conditions were followed by excessive rainfall that further hindered planting progress. The summer drought in Montana continued into the fall, leading many farmers to reduce their planted acreage. Notable exceptions to the reduced plantings include Kansas and Nebraska, where growers planted more acres than last year. Soft red winter (SRW) seeded area is down 6 percent from last year to about 8.9 million acres. Arkansas, Indiana, and South Carolina planted acreage equal to a year earlier. Dry conditions across most of the Southeast hampered seeding. In contrast, excessive soil moisture this past fall in parts of the Midwest was the cause of slowed planting progress. Wheat farmers in Indiana had an ideal fall season for seeding winter wheat. White winter wheat seeded area totals about 3.5 million acres, down slightly from In Idaho, above normal moisture in October was followed by a cold, dry November. Winter wheat seedings ran slightly ahead of normal for most of the State. Weather conditions were also good for seeding wheat in Oregon. Durum wheat seeded area in Arizona and California for the 2001 harvest are estimated at a combined 160,000 acres, down 14 percent from a year earlier. Seeding in California s San Joaquin Valley progressed rapidly during October and November, but below normal precipitation forced growers to irrigate earlier than usual. Seeding began in the Imperial Valley in late November and will continue into March. Spring Wheat Acreage Prospects Spring and durum wheat producers will likely be watching the condition of the HRW crop on the Central and Southern Plains as it comes out of dormancy and wheat prices versus competing crops when making their planting decisions (fig. 2). Continued poor conditions will result in higher prices and encourage expanded spring wheat plantings (fig. 3). Current expectations are that seedings will be higher than the 19.4 million acres planted a year earlier. Economic Research Service/USDA Wheat Yearbook/WHS-2001/March 2001 n 3

5 Figure 2 HRW and durum farm prices are up from their lows last year 1/ $\bushel DUR HRS SRW HRW WHT 1 June-97 June-98 June-99 June-2000 Date 1/ Average price received by farmers for each wheat class in major production regions, 1997/ /2000. Source: Economic Research Service, USDA. Figure 3 Relative prices of competing crops at the farm level $/bushel 10 Also, soil moisture supplies and the condition of the winter wheat crop will influence planting decisions in Montana and other spring wheat producing States. NASS released an estimate of farmers intentions to plant durum, other spring wheat, and row crops in the March 30 Prospective Plantings report. Weather in Plains is a Continuing Concern for 2001/02 Crop State Agricultural Statistical Services provide information about the wheat crop in the Central and Southern Plains where weather concerns continue. In Kansas, the largest wheat growing State, 26 percent of the crop was rated poor to very poor on March 19. On March 20 last year, 15 percent of the crop was rated poor to very poor. There was no estimated freeze or wind damage for 71 percent of the State s wheat crop. For the previous year s crop there was no freeze or wind damage for 93 and 86 percent of the crop, respectively. For Oklahoma, 44 percent of the State s crop was rated poor to very poor and only 1 percent of the crop received an excellent rating. For the previous year, only 3 percent of the State s crop was rated poor to very poor and 73 percent good to excellent. The State Statistical Service indicated that some wheat acres will be grazed out, hayed, or abandoned due to lack of proper emergence or heavy infestation of cheat. 8 6 Soybeans On March 19, the Texas wheat crop was rated 61 percent of normal, compared with 33 percent the previous year. Growth progress occurred across the State, with only minimal progress on the Plains. 4 2 Corn Wheat In Colorado, 6 percent of the winter wheat is being pastured, slightly more than the previous year, but the same as the 5-year average. Twelve percent of this year s crop received a rating of poor to very poor. 0 Jan.-96 Jan.-97 Jan.-98 Jan.-99 Jan.-00 Jan.-01 In Nebraska, 15 percent of the wheat crop was rated poor to very poor on March 4. However, there was above normal precipitation across the southern part of the State. Source: National Agricultural Statistics Service, USDA. 4 n Wheat Yearbook/WHS-2001/March 2001 Economic Research Service/USDA

6 Wheat Supply and Ending Stocks Likely Down in 2001/02 Lower production due to reduced acreage and yields in 2001/02, coupled with smaller carryin stocks, results in an expected reduction in supplies from a year earlier. Total use of wheat is expected to remain weak as exports and feed and residual use will likely decline. Carryout will continue to shrink, driven by smaller production, not increasing demand. The tighter supply/use balance is expected to boost prices. The following supply and use projections for 2001/02 were released at the 2001 Agricultural Outlook Forum on February 23, The first official U.S., world, and country-specific supply and use projections for 2001/02 will be in the May 10 World Agricultural Supply and Demand Estimates report. All Wheat Production Is Projected Down from 2000 Supply prospects for wheat in 2000/01 are affected by the expected decline in planted area and weather related conditions in parts of the major hard red winter wheat region, especially in the Southern Plains. The harvested area is forecast using an adjusted 5-year average harvested-to-planted ratio. The calculated 2001 harvested area, based on the 5- year average by State, is reduced a half-million acres due to delayed plantings and late emergence in the Southern Plains which resulted in many fields with thin stands (fig. 4). Decisions are pending whether to stay with the crop and top dress or replant to some spring crop. Yields are calculated at 40.5 bushels per acre using a 5-year average (fig. 5). Thus, all wheat production is projected at 2,125 million bushels, down 4 percent from Tighter Supply/Use Balance Is Expected To Boost Prices The lower U.S. production projected for 2001/02, coupled with smaller carryin stocks, results in 2001/02 supplies down almost 200 million bushels, or 6 percent, from a year earlier. Total U.S. wheat use in 2001/02 is expected to remain weak (fig. 6). Food use will continue to show some growth consistent with population growth and the average annual percentage change in food use since 1990, but feed Figure 4 U.S. wheat acreage likely down in 2001 Mil. acres 85 Figure 5 U.S. wheat yield likely down in 2001 Bushel/acres Corn 45 Winter Durum 70 Wheat Soybeans Crop year The crop year 2001 is a USDA projection, Agricultural Outlook Forum, February 22-23, Source: National Agricultural Statistics Service, USDA Other spring Crop year The crop year 2001 is a USDA projection, Agricultural Outlook Forum, February 22-23, An adjusted 5-year average by type of wheat. Source: National Agricultural Statistics Service, USDA. Economic Research Service/USDA Wheat Yearbook/WHS-2001/March 2001 n 5

7 and residual use will likely decline because of lower supplies. Total domestic use of 1,318 million bushels is projected down slightly from a year earlier. Given expectations of continued large supplies in major exporting countries and sluggish import demand, U.S. wheat exports are expected to decline in 2001/02 to 1,025 million bushels. The declining use prospects are more than offset by the even smaller supplies, thus, ending stocks decline 721 million bushels in 2001/02. This level would represent 30.8 percent of projected use, down from the 34.5 percent forecast for the current year. The tighter supply/use balance is expected to boost 2001/02 prices about $0.20 per bushel above 2000/01 prices to $2.85 per bushel. Figure 6 Disappearance down slightly in 2001/02 Mil. bushels 3,500 3,000 2,500 2,000 1,500 1, Food & seed Feed & residual Exports 1996/97 97/98 98/99 99/ /01 01/02 Marketing year beginning June /01 forecast. Marketing year 2001/02 is a USDA projection, Agricultural Outlook Forum, February 22-23, Source: Economic Research Service, USDA. 6 n Wheat Yearbook/WHS-2001/March 2001 Economic Research Service/USDA

8 World Wheat Supplies Unlikely To Increase in 2001/02 Winter wheat in the Northern Hemisphere has been planted, and area in several of the largest producing regions has declined. However, whether world wheat production increases or decreases in 2001/02 will largely depend on yields which, in turn, depend on weather. To date, there has been more favorable weather than last year in regions that suffered from drought a year ago. However, in some countries that had record yields, yield declines are expected. Global supplies are likely to be reduced even if there is some increase in production, because beginning stocks are down sharply. World wheat use is likely to grow slowly, with most of the increase driven by population growth supporting human consumption. World Wheat Production in 2001/02 Could Increase Modestly or Drop Significantly The U.S. Department of Agriculture (USDA) will issue its first global and country-specific supply and use projections for 2001/02 on May 10. Winter wheat has already been planted in the Northern Hemisphere, and area is reportedly down in more regions than have posted increases. However, yields will depend on the weather during coming months. Moreover, spring wheat in the Northern Hemisphere and all wheat in the Southern Hemisphere has not been planted. Global wheat production declined slightly in 1999/2000 and more in 2000/01. World production could post an increase in 2001/02 if weather is generally favorable, but the decline in area limits the potential increase. However, if weather is not favorable, a significant decline in global production is possible. The 2001/02 wheat crop is harvested first in South Asia, beginning in India in March, and soon after in Pakistan. Area in India is reportedly down around 3.5 million hectares, and the rainfed areas have received below normal rainfall. Thus, yields are not expected to match last year s record, and a significant drop in production is expected. However, Government wheat stocks remain large. Limited water for irrigation is expected to reduce area and yields in Pakistan, and production is expected to drop from last year s record. The production decline in Pakistan is likely to be large enough to curtail exports, making Pakistan a net importer of wheat in 2001/02. In China, the world s largest wheat producer, a recent Government survey indicated winter wheat area is down almost 5 percent. Despite increased wheat prices, producers are shifting to other crops because of higher returns. Last year s wheat yields were well below trend because of unfavorable weather. The crop is in better condition than last year, but yields will likely remain below trend due to increased plantings of lower yielding, higher quality varieties. Thus, a strong rebound in production is unlikely. Various trade analysts in Europe have estimated European Union (EU) soft wheat plantings to be down 5 to 7 percent (fig. 7). Durum planting may be little changed from a year earlier. Excessive rains during planting reduced winter wheat area sharply in Portugal, Spain, and the United Kingdom. Plantings are estimated down 5 percent in France, but a higher percentage was planted to bread-making varieties. The drop in EU area planted is large enough to make it unlikely that last year s record production will be matched in 2001/02. Eastern Europe s wheat production is expected to increase in 2001/02 because during the previous year area and yields were devastated by drought. In Hungary, grains committee officials are predicting a 30-percent increase in production based on a 20-percent increase in harvested area, but planting delays and recent floods may limit the production Figure 7 EU wheat area Mil. hectares Crop year Source: Foreign Agricultural Service, USDA. Economic Research Service/USDA Wheat Yearbook/WHS-2001/March 2001 n 7

9 increase. Drought has continued through most of the fall and winter in Bulgaria and Romania, though high prices reportedly encouraged an expansion in area. In contrast, Poland, the regions largest producer, had mild, favorable winter weather, but some sources estimate a small reduction from the previous year s near-record area. In the former Soviet Union winter wheat area has increased. Russia s winter grain area planted is reported up 5 percent. Despite dryness during planting, mild early winter growing conditions helped establish the crop. In some areas an unusually warm winter and thin snow cover left wheat vulnerable to cold outbreaks. Overall, as of early March, the condition of Russia s winter crops was reportedly similar to the average of the previous 5 years. Ukraine s winter grains plantings were up almost 13 percent. Less winterkill than average is expected and above normal moisture in February helped offset a dry winter. Given adequate spring moisture and favorable temperatures, Ukraine s yields are likely to rebound from the previous year s low level. The former Soviet Union looks likely to increase wheat production in 2001/02, but the most critical parts of the growing season are still ahead. Spring wheat, which accounts for over 55 percent of the area but only about 40 percent of production, has not yet been planted. There are also prospects for increased wheat production in North Africa and the Middle East. A year ago there was good planting moisture in much of North Africa, but the rains shut off in early spring, and drought devastated crops. Rains came late this year and plantings were delayed. Weather has been mixed in 2001, and yield prospects will depend on timely spring rains. Except for Turkey, planting conditions across the Middle East were much better than a year earlier. However, winter rainfall was below normal in some areas, notably Iran and Turkey s Anatolian Plateau. In addition, much above-normal temperatures caused crops to break dormancy earlier than usual and maintained high crop moisture demands during early development. Thus, while Iran s yields will likely rebound from the drought-reduced levels of the past 2 years, much will hinge on timely rains. In Turkey, lower support prices reduced area planted, so reduced production is expected for the region s major producer and exporter. Spring wheat producers in the Northern Hemisphere and Southern Hemisphere producers have not yet planted wheat for harvest in 2001/02. This includes major exporters such as Canada, Australia, Argentina, and Kazakhstan. Because current prices are somewhat higher than a year ago, most of these exporters are expected to increase area. In Canada, wheat area will expand as lower area is planted to canola. In early March, Agriculture and Agri-Food Canada projected a 2-percent increase in wheat area, but production is projected at about the same level as last year. According to the Australian Bureau of Agriculture and Resource Economics, Australia s wheat area is projected to increase slightly and production is expected to reach 23.3 million tons, up from 21.0 million (USDA) in 2000/01. Stronger wheat prices and more attractive expected returns will likely encourage higher wheat plantings in Argentina. The potential for increased wheat production in Canada, Argentina, and Australia boosts prospects for a competitive export market in 2001/02. Lower Beginning Stocks in 2001/02 To Limit Supplies Global wheat stocks at the start of 2001/02 are forecast down 16 million tons from the previous year. The major exporters, the United States, Canada, EU, Australia, and Argentina, account for only 3 million tons of the stock decline. Unless world wheat production increases by at least 16 million tons, global wheat supplies will be down in 2001/02 compared with a year earlier. The decline in winter wheat area in the Northern Hemisphere makes it unlikely that production will increase that much. However, even if global wheat supplies decline in 2001/02, exporters supplies could increase. Modest Global Wheat Consumption Growth Expected, but Trade Could Stagnate In 2001/02, world wheat consumption is expected to rebound some from the previous year s decline (fig. 8). Most of the growth in wheat consumption is expected to be the result of population growth slowly boosting food use. There is some evidence that wheat food use is declining in urban areas of China as incomes increase and diets diversify. Increased wheat feed and residual use could occur in Eastern Europe and the former Soviet Union, if larger crops materialize. EU feed use is difficult to predict because of the unknown effects of BSE and foot and mouth disease. Also Figure 8 World wheat consumption flat in 2000/01 Mil. metric tons Food, seed, & industry /88 90/91 93/94 96/97 99/2000 July-June trade year Source: Foreign Agricultural Service, USDA. Feed & residual 8 n Wheat Yearbook/WHS-2001/March 2001 Economic Research Service/USDA

10 complicating the analysis is whether or not the temporary ban on use of meat and bone meal in animal feed will be extended. If many animals are killed because of disease concerns, demand for feed could decline. However, prices for wheat relative to other grains and protein meals will determine how much wheat is fed. Increasing demand for wheat for food in importing countries of Latin America and parts of Asia will support world wheat trade in 2001/02. With reduced production, Pakistan could be an importer in 2001/02. However, larger crops in North Africa and parts of the Middle East could reduce those countries need to import. China is expected to increase wheat imports in 2001/02 whether or not they enter the World Trade Organization. However, the size of China s imports is a key unknown that could determine if world wheat trade declines or grows in 2001/02. Economic Research Service/USDA Wheat Yearbook/WHS-2001/March 2001 n 9

11 Situation and Outlook for 2000/01 Prices Strengthen As Ending Stocks Decline in 2000/01 U.S. wheat production declined in 2000/01 because of a reduction in harvested acres and average yields. Less favorable weather compared with a year earlier for winter wheat in the Plains dropped winter wheat yields, substantially reducing the supplies of hard red winter wheat. Durum and other spring wheat yields were up compared with a year earlier. Reduced supplies for 2000/01 and the expected increased total use result in declining ending stocks and higher season average prices received by farmers. U.S. Wheat Supplies Down, Prices Are Up in 2000/01 U.S. wheat production is estimated at 2.2 billion bushels in 2000/01, down 3 percent from 1999/2000 (table 1). With slightly larger beginning stocks, the U.S. wheat supply in the 2000/01 (June-May) marketing year is forecast to drop 2 percent from 1999/2000 (fig. 9). The average farm price for all wheat dropped to $2.32 per bushel during July 2000 because of improved production prospects in the Winter Wheat Belt and large supply prospects in competing exporting countries. Average farm prices rebounded to $2.41 in August, and have ranged between $2.44 and $2.87 since then. The preliminary farm price of all wheat in February 2001 was $2.83 per bushel, Figure 9 Wheat supply and ending stocks likely down in 2001/02 Mil. bushels 4,000 3,500 3,000 2,500 2,000 1,500 1, Total supply Total use Ending stocks 1996/97 97/98 98/99 99/ /01 01/02 Marketing year beginning June 1 Marketing year 2001/02 is an USDA projections, Agricultural Outlook Forum, February 22-23, Source: Economic Research Service, USDA. down from $2.87 reported for December, but 29 cents above a year earlier. Prices will remain sluggish in the coming months in the absence of fresh export demand or a serious weather-related change in crop conditions (fig. 10). The season-average farm price in 2000/01 is forecast at $ $2.70 per bushel, significantly above the $2.48 received by farmers in 1999/2000, but much below the record $4.55 in 1995/96. U.S. ending stocks are projected to total 834 million bushels, less than at the end of the past 2 years, but still large enough to put continued pressure on cash and nearterm futures prices. Winter Wheat Yields Down from Last Year s Record Winter wheat production accounted for about 70 percent of U.S. output in 2000 and totaled 1,563 million bushels. Figure 10 Wheat price remains low for third year $/bushel / / / / /00 June Aug. Oct. Dec. Feb. Apr. Source: National Agricultural Statistics Service, USDA. 10 n Wheat Yearbook/WHS-2001/March 2001 Economic Research Service/USDA

12 Table 1--Wheat supply, disappearance, and stocks, June-May Item 1997/ / / /01P Million bushels Stocks, June CCC inventory Farmer-owned reserve 1/ Outstanding 9 months Uncommitted Production 2,481 2,547 2,299 2,223 Imports (June-Aug.) Total supply 2,948 3,294 3,276 3,194 Use, June-Aug. Food Seed Feed & residual Exports Total use Stocks, Sept. 1 2,076 2,385 2,445 2,353 CCC inventory Farmer-owned reserve 1/ Outstanding 9 months Uncommitted 1,882 2,049 2,211 2,126 Imports (Sept.-Nov.) Total supply 2,099 2,409 2,465 2,378 Use, Sept.-Nov. Food Seed Feed & residual Exports Total use Stocks, Dec. 1 1,619 1,896 1,886 1,802 CCC inventory Farmer-owned reserve 1/ Outstanding 9 months Uncommitted 1,357 1,523 1,654 1,602 Imports (Dec.-Feb.) NA Total supply 1,643 1,924 1,905 NA Use, Dec.-Feb. Food NA Seed NA Feed & residual NA Exports NA Total use NA Stocks, March 1 1,167 1,450 1,415 NA CCC inventory NA NA Farmer-owned reserve 1/ 0 0 NA NA Outstanding 9 months NA NA Uncommitted 882 1,084 NA NA Imports (Mar.-May) NA Total supply 1,192 1,477 1,440 NA Use, March-May Food NA Seed NA Feed & residual NA Exports NA Total use NA P = Preliminary. NA = Not available. 1/ Includes special producer loan program. Source: Economic Research Service, USDA. Because of less favorable weather than in 1999, winter wheat yields dropped from the record 47.8 bushels per harvested acre to 44.6 bushels. An estimated 80.8 percent of the seeded winter wheat area was harvested for grain in 2000, compared with 81.9 percent in 1999 and a 5-year average of 82.5 percent. Durum Ending Stocks Decrease for the Second Year in a Row The 2000 durum wheat production season in the Northern Plains was characterized by a dry planting season, variable growing conditions, and a wet harvest period. Durum yields rose to 30.7 bushels per harvested acre, 10 percent above the previous year. The durum yield has averaged less than 30 bushels only once during the 1990s. The record-high durum yield of 39.7 bushels was set in Durum production was up 11 percent in 2000/01 compared with a year ago. However, beginning stocks were down, leaving durum supplies up only 3 percent. Expanded use is leading to a further reduction in ending stocks for 2000/01 compared with the past two marketing years. However, the individual use categories of food and feed and residual are not comparable with past use data. The U.S. Census Bureau redefined their semolina flour and durum wheat grind data collection starting in 2000 to include pasta manufacturers if they have and operate a flour mill on site. Because these additional mills are included in the 2000 data, the projected food use and feed and residual use are not comparable with previous years data. For a tentative analysis of the impact of this redefinition, see Wheat Outlook, WHS-O500, May 16, 2000, posted on the Economic Research Service s Wheat Briefing Room, The U.S. average price received by farmers for durum declined to a seasonal low of $2.32 per bushel in September before rebounding to a preliminary $3.25 for February Higher Yields Raise Production of Other Spring Wheat in 2000 The other spring wheat crop increased in 2000 because higher yields more than offset reduced harvested acreage. The average yield was 38.2 bushels per acre for other spring wheat (i.e., includes hard red spring (HRS) and white spring but excludes durum), up 4.1 bushels from Despite harvested acreage falling and an estimated 209,000 acres, HRS production increased more than 50 million bushels to 498 million. Total Use Increased in 2000/01 Total disappearance of U.S. wheat in 2000/01 is forecast to rise about 2 percent, or 44 million bushels, from 1999/2000. Both domestic use and exports are up. Seed use is forecast down in 2000/01 due to lower plantings for the 2001 crop. Economic Research Service/USDA Wheat Yearbook/WHS-2001/March 2001 n 11

13 Food use is projected at 950 million bushels in 2000/01, up about 25 million from a year earlier. Feed and residual use is projected to rise about 16 million bushels in 2000/01. However, these food use and feed and residual use numbers are not strictly comparable with last year because of the Census Bureau s redefinition of their semolina flour and durum wheat grind data collection starting in Their data, starting with the first quarter of 2000, now includes pasta manufacturers if they have and operate a flour mill on site, as mentioned above. Ending Stocks Decline U.S. ending stocks are forecast to be 839 million bushels on May 31, 2001, down 12 percent from a year earlier. Most of the ending stocks will be free stocks accessible to the market. Current futures price relationships between old-crop and new-crop futures provide adequate incentives for holding old-crop stocks and carrying them forward into the new marketing year. LDPs Support Wheat Farmers Income in 2000/01 The 1996 Farm Act s programs to assist farmers facing low market prices include the nonrecourse marketing assistance loans and loan deficiency payments (LDPs). Producers that entered into Production Flexibility Contracts with USDA are eligible to participate in these programs. The nonrecourse marketing assistance loans provide interim financing to eligible producers of wheat and other commodities covered by the program. Producers pledge their wheat as collateral and obtain a loan equivalent to the loan rate established in their county by the Farm Service Agency of USDA. The loan proceeds can cover short-term cash needs. As of March 20, 2001, wheat producers had outstanding loans on 72 million bushels of 2000-crop wheat. The value of the outstanding loans totaled $182 million. For the 2000-crop wheat, total loans of $455 million were made on 176 million bushels. In comparison, a total of $398 million was loaned on 154 million bushels for the 1999 crop. The loans may be forfeited to the Commodity Credit Corporation at maturity or repaid at the loan repayment rate at, or before, maturity. The loan repayment rate may actually be less than the loan rate (plus interest) if the posted county price (PCP), a proxy for the local price, falls below the local loan rate. The PCP calculated each day the Federal Government is open is based on terminal market prices and a fixed differential to each county, largely reflecting transportation and other marketing factors. When a farmer repays the loan at a lower PCP, the difference between the loan rate and the PCP is called a marketing loan gain. If the PCP is below the county loan rate, eligible producers may opt for a loan deficiency payment (LDP) on par or all of the crop in lieu of securing a loan. The LDP rate is the amount by which the county loan rate exceeds the PCP on the date the application is made. The wheat cannot be placed under loan once an LDP is paid. If producers take the LDPs and immediately sell their crop and if the PCP accurately reflects local prices, producers effectively receive a per-unit revenue equal to the loan rate, partly from the market and partly from the Government. After an LDP is accepted, the farmer can sell the crop and avoid storage expense or hold it in the expectation of a price rally later in the marketing season. As of March 20, 2001, eligible producers collected $787 million in LDPs covering 1,911 million bushels of crop wheat or about 80 percent of the 2000 crop. The average payment rate was 44 cents per bushel. Eighty-three percent of the 1999 crop received an LDP, and LDPs totaled $890 million for the 1999 crop. In 1998, only 55 percent of the crop received an LDP, and the total was $414 million. 12 n Wheat Yearbook/WHS-2001/March 2001 Economic Research Service/USDA

14 World Wheat Production, Stocks, and Trade Drop in 2000/01 Global production is estimated down more than 7 million tons in 2000/01. Forecast consumption is down less than 2 million, but is forecast 17 million tons larger than production, dropping forecast stocks to about the same level as reached in 1995/96. However, world wheat trade is expected to decline 6 million tons largely because of increased production and reduced imports by Russia, Pakistan, and India. Although facing sharply lower production, China has reduced stocks while keeping imports at the previous year s low. 2000/01 Global Production the Lowest in 5 Years World wheat production in 2000/01 is estimated at 580 million tons, down more than 1 percent from the previous year (fig. 11). Production dropped 12 million tons in China as area declined in response to reduced government support prices and lower market prices, while dry conditions reduced the average yield. Wheat production fell 4 million tons in Australia, where drought struck western growing areas while too much rain flooded some eastern regions. Wheat production in the former Soviet Union declined more than 2 million tons despite an increase for Russia. Drought-reduced production in Ukraine and Kazakhstan failed to repeat the previous year s exceptional results. North Africa and parts of the Middle East suffered from a second consecutive year of drought, and drought reduced production in Eastern Europe. These declines more than offset record production in Argentina, the European Union (EU), and South Asia. Lower wheat prices during planting reduced the incentive to plant wheat in some countries, like China and India, but for most countries, low prices for competing crops limited the Figure 11 World wheat production, use, and stocks Mil. metric tons Production Use Stocks (right axis) /90 91/92 93/94 95/96 97/98 99/00 Local marketing year Source: Foreign Agricultural Service, USDA. Mil. metric tons shifts out of wheat. Foreign wheat area declined only 1 percent from the previous year, with some of the decline the result of drought, not low prices. In 2000/01 foreign area was 5 percent less than the recent peak reached in 1996/97, following higher prices. The 2000/01 average foreign wheat yield almost matched the previous year s record. World Wheat Consumption Expected To Decline in 2000/01 Global consumption is forecast at 597 million tons, down 2 million from the previous year. Reduced food use in China, and lower feed use in Eastern Europe and the former Soviet Union account for most of the decline, offsetting increases elsewhere. Surveys indicate that per capita wheat consumption in urban China has begun to fall as incomes increase and diets diversify. Wheat feeding in Eastern Europe and the former Soviet Union has fallen through most of the last decade. Declining incomes and reduced subsidies have dropped animal numbers and meat production. Reduced 2000/01 wheat production in most of Eastern Europe, Ukraine, and Kazakhstan, and tight supplies of other feed grains in several countries, led to continued liquidation of livestock. Global use of wheat for feeding is expected to remain virtually unchanged in 2000/01 because the declines in Eastern Europe and the former Soviet Union are offset by increased feed use in the EU. EU wheat feed use increased as the price of grains declined compared with the price of protein meals and other non-grain feeds. Wheat consumption is forecast up in South Asia, with record production. Despite tight supplies in some countries suffering from drought, particularly Iran, wheat use is up in the Middle East as the population is growing rapidly. However, consumption growth in Latin America is expected to be much slower than during the previous 2 years because Brazil and Mexico are expected to have nearly stable wheat consumption. Wheat consumption is expected to decline in North Africa where wheat supplies are tight after 2 years of drought, and in Sub-Saharan Africa, where foreign exchange constraints and limited food aid budgets crimp imports and consumption. Wheat consumption in relatively wealthy countries, like South Africa and Nigeria, is expected to grow. Economic Research Service/USDA Wheat Yearbook/WHS-2001/March 2001 n 13

15 Even though down slightly from a year earlier, 2000/01 wheat consumption remains near the previous year s record. World wheat consumption in 2000/01 is up 6 percent compared with a decade earlier, less than population growth. World wheat feed use peaked in 1990/91 at 131 million tons and dropped to a forecast 103 million in 2000/01, with most of the reduction in Eastern Europe and the former Soviet Union. Food use growth over the last decade has been large enough to more than offset the drop in feed use. World Wheat Stocks Forecast To Drop 17 Million Tons in 2000/01, Largest Decline Since 1993/94 China is expected to show the largest drop in ending stocks during 2000/01, down almost 12 million tons. The size of China s wheat stocks is considered a state secret, and USDA s estimate is an approximation, so the year-to-year change in stocks is likely more important than the forecast level. Grain stocks in China are large, and supplies are adequate. The expected decline in wheat stocks during 2000/01 is not confined to China, but includes most major producing and consuming regions. After consecutive years of drought, forecast stocks in the Middle East and North Africa are down. Eastern Europe s wheat stocks are expected to sink to the lowest since 1985/86. Wheat stocks in North America, Latin America, and Oceania are also expected to decline. EU stocks are forecast up slightly. Only India, Pakistan, and Russia are expected to increase wheat stocks significantly in 2000/01. The decline in world wheat stocks has not had a large price impact because much of the drop is concentrated among major importers. Prices are largely set by supply and demand in exporting countries, and exporters stocks, though declining, remain large. World Wheat Trade Expected To Decline in 2000/01 Global trade (excluding intra-eu trade) in 2000/01 is forecast at nearly 107 million tons, down 6 million from the previous year but higher than the 102 million averaged from 1994/95 to 1998/99. Trade is down compared with a year earlier mostly because of a sharp drop in imports by Pakistan, India, and the former Soviet Union. India has emerged as a significant net exporter in 2000/01 because of large wheat stocks, record harvests, and Government subsidies for exports. Imports by the former Soviet Union have dropped because of a larger harvest in Russia, sharply reduced food aid to the region, and reduced shipments from Kazakhstan to its neighbors. Eastern Europe is expected to increase imports in 2000/01 because of reduced production and tight stocks. Latin America (Brazil) and North Africa (Algeria) are expected to increase imports, but by less than 1 million tons each. While imports by the Middle East are little changed from a year earlier, they are much larger than the previous 3 years. Little change in wheat imports is also expected in North America, Western Europe, Sub-Saharan Africa, or Asia outside of South Asia. Brazil, with strong population growth and reduced wheat production, is expected to be the largest wheat importer in 2000/01, bringing in almost 8 million tons. Iran, suffering from a second year of drought, is forecast to import more than 7 million tons (fig. 12). Egypt harvested a record-high wheat crop in 2000/01, and is blending corn with wheat in the production of some flours. However, Egypt is still expected to increase wheat imports to over 6 million tons. Japan s wheat imports are little changed at almost 6 million tons. Algeria, facing drought and tight supplies, is expected to import over 5 million tons. China, on the other hand, is forecast to import only 1 million tons of wheat, virtually unchanged from the previous year, even though wheat production and stocks are declining significantly (fig. 13). Figure 12 Iran: Wheat production and consumption Mil. metric tons Figure 13 Wheat exports to China Mil. metric tons Consumption Production Crop year Source: Foreign Agricultural Service, USDA. United States /91 92/93 94/95 96/97 98/99 July-June trade year Sources: Economic Research Service and Foreign Agricultural Service, USDA. Other exporters 14 n Wheat Yearbook/WHS-2001/March 2001 Economic Research Service/USDA

16 U.S. Wheat Exports Up Slightly in 2000/01, U.S. Share of Global Trade Increases U.S. wheat exports are forecast to increase slightly because of reduced competition from the European Union (EU), Kazakhstan, Australia, Eastern Europe, Turkey, and others. Some increased competition is expected from Argentina, India, and Pakistan. The top markets for U.S. wheat exports are expected to be little changed, including Egypt, Japan, Mexico, and the Philippines. U.S. Wheat Exports Forecast Up Slightly in 2000/01 U.S. 2000/01 wheat exports are forecast at 1.1 billion bushels, up only 10 million bushels on a June/May local marketing year. For the international trade July/June marketing year, 2000/01 U.S. exports are forecast up 0.5 million tons to 30 million. Shipments during the first half of 2000/01 lagged yearearlier levels (fig. 14). Census data from June through December 2000 show U.S. wheat grain exports of 17.7 million tons, down 2 percent from a year ago. Grain inspections data for January and February indicate wheat exports of 3.9 million tons, higher than the 3.7 million that Census reported for a year earlier. Moreover, according to U.S. Export Sales, as of March 1, 2001, outstanding sales at 3.5 million tons, were up 12 percent from a year ago. Reduced net competition from the Southern Hemisphere is an important factor boosting U.S. export prospects. Figure 14 U.S. wheat exports, by months Mil. tons June Aug. Oct. Dec. Feb. Apr. Includes flour and products in wheat equivalent units. Note: 6/99-12/99 = 705 million bushels; 6/ /2000 = 677 million bushels. Source: Bureau of the Census, USDC. 1999/ /01 Competition during the second half of 2000/01 is not likely to be as intense as a year earlier because Australia s production has dropped 4 million tons, more than Argentina s 1- million-ton increase. Moreover, the large carry in the futures markets, with wheat prices higher in later contracts than in nearby contracts, may induce competitors to market wheat more slowly during 2000/01, hoping to take advantage of higher prices in 2001/02. Largest Purchasers of U.S. Wheat Little Changed Since 1993 the level of U.S. wheat exports ranged between 27 and 33 million tons. Moreover, the major commercial markets for U.S. wheat have also remained largely unchanged. In the last couple of years the top five purchasers of U.S. wheat have been Egypt, Japan, the Philippines, Mexico, and South Korea. According to U.S. Export Sales, as of March 1, 2001, commitments (the sum of shipments and outstanding sales) compared with a year ago were up 20 percent to Egypt, down 7 percent to Japan, down 1 percent to the Philippines, down 6 percent to Mexico, and down 10 percent to South Korea. U.S. wheat is doing well in Egypt because U.S. white wheat prices are competitive with the EU and Australia. Japan s wheat imports are forecast down only slightly in 2000/01, and market shares tend to be stable, so increased purchases of U.S. wheat are expected. The Philippines continues to purchase U.S. wheat both to mill for food use and to use for feeding because corn imports are restricted. However, recent sales to the Philippines by India will reduce U.S. export potential. Mexico s imports are expected to decline because of increased production and reduced consumption. South Korea is expected to increase wheat imports in 2000/01, but has been purchasing wheat for use as a feed grain from other sources, notably India. Smaller markets with significant gains in U.S. commitments as of March 1, 2001, include: Indonesia, with 0.7 million tons, more than double year-earlier levels; Tunisia, purchasing over 0.2 million after importing no U.S. wheat during 1999/2000; and Libya, also with 0.2 million, as U.S. exporters are allowed to sell wheat to this market for the first time in many years. Economic Research Service/USDA Wheat Yearbook/WHS-2001/March 2001 n 15

17 U.S. Share of Global Trade Increasing In 2000/01 Despite a continued relatively strong U.S. currency, U.S. wheat is expected to increase its share of world exports in 2000/01 (fig. 15). The largest competitor in 2000/01 is expected to again be Canada, exporting 19 million tons. Canada s production and exports are expected to nearly match the previous year. However, the Canadian crop, though nearly as big as a year ago, was rained on extensively, reducing quality in some areas. Moreover, a larger portion of area was devoted to durum wheat, and the Canadian Wheat Board has not been as successful at marketing the durum as it has the hard red spring. Australia is expected to export 16 million tons, down 1.1 million from a year ago. Production, harvested in the middle of the July/June marketing year, dropped 4 million tons, but shipments during the first half of 2000/01 were boosted by the previous year s record crop. Reduced competition from Australia is an important factor boosting the U.S. market share. EU wheat exports are forecast to drop 2.4 million tons to 15 million, despite record wheat production in 2000/01. The Figure 15 U.S. share of world wheat trade up in 2000/01 Percent /86 88/89 91/92 94/95 97/ /01 Excludes intra-eu trade. July-June trade year Source: Foreign Agricultural Service, USDA. EU Commission started the year not subsidizing exports, because the lower support price and strong U.S. currency made EU grain competitive on world markets. Beginning in December, the EU has provided relatively small export subsidies during most weeks. Although record large, parts of the EU crop were rained on at harvest, causing extensive quality problems. A large increase in wheat feed use is forecast, allowing the commission to cut back on exports without a significant increase in stocks. The EU is the largest competitor for the lower quality U.S. wheat exports. Argentina, harvesting a record-large crop, is expected to export a record 12 million tons of wheat in 2000/01, up 1.2 million from last year s record. Sales and shipments data indicate that much of the increase is to Iran, but Brazil will remain the dominant buyer. The remainder will be available to increase market share in other markets, including South America (Peru), North Africa, and the Middle East. Kazakhstan is expected to reduce exports by 2.5 million tons to 4.0 million mostly because of reduced production. Russia s imports from Kazakhstan are expected to decline because of an increased Russian crop. The transportation system severely limits exports except through Russia. The U.S. share of world wheat trade is unlikely to increase directly as a result of these changes. Eastern Europe, Ukraine, and Turkey are also expected to reduce wheat exports in 2000/01, helping to boost the U.S. market share in North Africa and the Middle East. East Europe suffered from drought and is expected to reduce exports by 0.6 million tons to less than 3 million tons, with most of this being shipped to other countries in the region. Turkey is expected to reduce exports by 0.5 million tons to 1.5 million because financial constraints have limited purchases from farmers and subsidized exports. Ukraine is expected to become a net importer of wheat in 2000/01, with exports dropping by 1.6 million tons because of drought. U.S. wheat exports are forecast to increase only a small amount, but reduced competition and declining world trade will boost the U.S. share of world wheat trade to 28 percent (excluding intra-eu trade) in 2000/01, up from 26 percent a year ago. However, this is not an exceptionally large share, being slightly less than achieved in 1998/ n Wheat Yearbook/WHS-2001/March 2001 Economic Research Service/USDA